The Kiwi companies most likely to go bust: Credit data mostly doom and gloom, but some room for hope

Centrix says Kiwis have been winding back discretionary spending in light of some challenging economic conditions. Photo / Jason Oxenham

Kiwis are winding back their discretionary spending in the midst of some tight economic conditions putting pressure on certain types of retailers.

Centrix’s latest monthly Credit Indicator report found online-only stores had experienced the highest new business failure rates lately, with one in four folding since 2020.

But clothing and footwear retailers were also experiencing turmoil.

“In fact, retail stores specialising in high-cost products like motor vehicles, electrical appliances and household furniture are at a greater risk of liquidation than other business sectors,” Centrix managing director Keith McLaughlin said.

“It’s clear the current climate remains tricky to navigate for a lot of Kiwis. As discretionary spending continues to scale back, many retailers are beginning to feel the pinch.”

The latest Centrix data seemed to reinforce some other research indicating people were spending less on luxury or discretionary goods.

Kiwibank senior economist Mary Jo Vergara three weeks ago said bank data showed Kiwis were spending more on their cards, but getting less - and there was little appetite to splurge.

The Kiwibank report found spending on home contents and furnishings had been mediocre lately - and about the only resilient spending was on relatively minor regular treats such as coffee or brunch.

Centrix’s latest report said nationwide, 427,000 people were now behind on repayments.

Car loans are among the biggest forces increasing credit demand. Photo / Dean Purcell

Demand for car loans was up 14 per cent on a year earlier.

The next biggest drivers of demand were retail energy, credit cards and personal loans.

“Arrears have also climbed, tracking close to 2018 levels – although it is important to remember these levels are coming off historic lows in the wake of the Covid-19 pandemic,” McLaughlin said.

“Many of the discretionary spending arrears have trended downwards month-on-month, while essentials like retail energy arrears have climbed in recent months,” he added.

“Mortgage and vehicle loan arrears were also up year-on-year, which is a concerning trend to observe, as these essential repayments are often the last households let slip when times get tough.

“As we near the end of the year and begin turning our sights towards the Christmas and summer period, these concerns are likely to be weighing heavy on many minds across the country.”

Despite that gloomy overview, there was some good news, McLaughlin said.

“As interest rates continue to constrict economic activity, there remains hope for reduced inflationary pressure as we head into 2024.”

Keith McLaughlin says some big economic forces are causing pre-Christmas worries - but there is hope.

Centrix found overall credit demand was up 5 per cent year-on-year in October.

Mortgage demand was down 8.8 per cent year-on-year, but McLaughlin said an upswing in inquiries had been detected since the general election.

“This could point to the expectation the new Government will restore mortgage interest deductibility for property investors.”

Since late 2021, people have been unable to claim interest for residential property acquired on or after March 27 of that year, unless an exclusion or exemption applies.

Under current rules, the ability to deduct interest would be phased out by April 2025 for properties acquired before March 27, 2021.

The Council of Trade Unions labelled the National Party’s planned restoration of interest deductibility as a “reverse Robin Hood tax plan”, but the NZ Property Investors’ Federation has said property owners could use the tax break.